Mark Bouris: What to look for in a savings account

Am I getting a bad one? It won't come as a surprise to most consumers that deposit rates on ordinary savings accounts rarely rise when official interest rates do. You would be a supreme optimist to hope the banks would pass on non-official interest rate hikes we saw on mortgages last month. Even accounts that are sold on the promise of a high rate, such as online savings accounts, can be slow to follow the movements of lending rates.

And that is not the worst of it. In its recent review of deposit savings accounts, research company Canstar found almost one in three deposit accounts paid no interest at all on balances of less than $1000. More than half the accounts reviewed paid less than 2 per cent interest, even on deposits of $5000.

The research looked at 392 products, including everyday transaction accounts, cash management and bonus saver accounts as well as online savings accounts and junior savers. Less than a quarter of these accounts paid more than 4 per cent interest on a balance of $1000 and even for $5000 deposits, fewer than one-third of the accounts paid more than 4 per cent.

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What should I do? Canstar says you should start by having a good look at the account and interest paid. Some accounts promote decent interest rates but pay them only when your balance exceeds a minimum level.

So, if your account has a headline rate of 4.25 per cent, you could find you earn little or no interest on the first $1000 invested and lower rates up to $5000, $10,000 or even $500,000. Canstar says consumers should also check whether the interest payments are stepped or apply to the full balance. For example, if you have $5500 in the account and the interest applies only on balances of more than $5000, you might find you earn only the top rate on $500 of your savings. ''Look for an account that pays interest on the entire balance,'' the research manager at Canstar, Chris Groth, says. He says fees are another area that can have a big impact on savings. ''If you are paying $5 per month in account-keeping fees, this is equivalent to 3 per cent per annum on a $2000 balance.''

Poor returns … it could take some detective work to find a better deal on deposit accounts. Illustration: Kerrie Leishman

So you could find you are getting little or no interest but paying up big in fees.

Can I find an account with decent interest and no fees? If you are talking about daily transactions accounts, probably not. Canstar rated the products for three profiles - an electronic transactor, a high-volume transactor who wanted full service, and a low transactor wanting full service. (Full service related mainly to branch transactions.) Many of the accounts with low or no fees that attracted the coveted five-star rating paid no or negligible interest.

Exceptions were Bankwest's Hero Transaction Account with an interest rate of 4.5 per cent on $1000, NAB's Cash Manager, which paid 3.75 per cent on $1000 (both rated for high and low transactors), and Newcastle Permanent's Rapid Saver with an interest rate of 5.5 per cent (rated for electronic transactors).

To get better interest rates you generally need to invest in a non-transaction account such as an online savings account, bonus saver or cash-management account.